Why Teladoc Health Has a Wider Moat Than You Might Think

Investors have soured on Teladoc Health (TDOC -2.25%) stock, as evidenced by its 68% decline from earlier this year. The market appears to believe that the company lacks any competitive advantage to thrive in a world that's looking to move beyond the pandemic. However, in this video from Motley Fool Backstage Pass, recorded on Nov. 29, contributor Jason Hall lays out for fellow contributors Matt Frankel and Jon Quast how Teladoc has a lot of patient data, among other things, which gives its business a wider moat than you might think.

Jason Hall: Yes. Teladoc, this is the telehealth company, but I think it's a little more than a telehealth company. This is a business that is expanding more broadly into virtual care. As you think about people with chronic illnesses, helping them manage it. People dealing with mental illness and depression helping them manage those illnesses. There are just a tremendous number of things that the company is doing and it's very much been tied up in the COVID stock, versus the recovery stock kind of things.

If you look at its business, let's see, I think I've got just real quickly a couple of tables here. I'm just going to share. Can you guys see that? This is just showing some of their financial results. Revenue grew 81% year-over-year, raised guidance for the year. A couple of really big announcements announced the deal with CVS Health for its primary 360. As more people need to have access to care. Doing more and more of that. Number of chronic care members. Again, people with chronic illnesses like diabetes they are looking to treat. They have tripled the number of people that are using more than one program. Now a quarter of their chronic-care members are using that. Visits, 37% up year over year. In the quarter that was really against the biggest COVID quarter last year, total visits grew 37%.

Now I want to show this, too. I think this is really important. You see this little tiny purple dot right here, guys. That's Teladoc's 2021 full-year revenue against just U.S. healthcare spend. Obviously, a lot of this is not addressable to what they do. But again, the key thing about it is if you look at like the total addressable market, $261 billion, it is enormous compared to where the company is. It just seems like there's a combination of things going on. No. 1, there's the reopening trade and there's a lot of view that Teladoc out really isn't going to be like a post-COVID business, which I think is complete nonsense. But also the reality is that Livongo Health deal they paid like almost 60 times sales for Livongo Health. That was a huge, huge buy. It's going to be years of growth and expansion of how the Livongo health tools integrate into their total offering before that pays off. And also a lot of the Livongo people came along and their compensation came along, equity-based compensation, that sort of thing. So that's maybe part of it too.

But at the end of the day, I just think this is a very misunderstood business in a massive and growing industry.

Matt Frankel: My biggest question, and I ranked this a lot lower than you two did. I don't understand the telehealth model as much as I probably should just because it's really not my wheelhouse. The question I would pose to both of you, and I'm sure there is a lot of other viewers who don't understand it that well. When I hear Teladoc, I essentially think I'm having a Zoom meeting with my doctor. What does it add to the process beyond that, that I couldn't just do, like we're talking right now? What is Teladoc's big value add to the process?

Hall: Like I said, that just barely scratches the surface right. One of the things that changed was regulatory support for being able to do a telecall with your doctor and that actually qualify as an appointment. That was illegal before the pandemic started. It's still not completely clear whether that thing is going to be opened up. There's all kinds of compliance requirements with the applications. Making sure that that data it's going over the internet, making sure that that data is secure, making sure that anything that's stored is stored in a place that is secure and accessible after the fact. Then you start talking about paper trails, you start talking about portability of information. You think about things like HIPAA. That's a lot of like the regulatory hurdle where that's really, really important.

Then it's all of the other tools. There is virtual care tools, they aren't you doing a video call with the doctor. That are helping you deal with a chronic illness. The little nudges, to remind you. Are you checking your insulin? Are you taking your medications? Things like mental illness, making sure that you are making your appointments with your therapist that your scheduling, that you're doing your follow-ups, that sort of thing. Those things are really valuable and it's something you don't get with just a Zoom license.

Jon Quast: Jason, I really like that last part of the thesis that you just laid out as far as the personalization of your healthcare experience with some of the ancillary services that Teladoc offers. I think that's a big part of the thesis here going forward. This isn't just talking to your doctor on the computer. This is like you said, it knows about you and it's sending you nudges and it is collecting information on you as well that it can use to improve healthcare experiences for other people going forward, and really, that is something that improves the product the more people as they get involved there. The Livongo acquisition is a big part of why they're building this out and how they're building this out. But as more people sign up for the service, as they gain more user data and more medical information. This is something that they can get better at going forward.

Hall: That data is really important. I'm glad you mentioned that because over time that data will be useful to understanding what's effective and improving outcomes, which is really important. Showing providers, showing the payers, how can you leverage every dollar that goes into your healthcare spend and improve the outcome for your patients? That data set is really valuable, too.